|By Brendan Pierson

(Reuters) - A Turkish-Iranian gold trader on Thursday told jurors in a New York federal court that Turkish President Recep Tayyip Erdogan authorized a transaction in a scheme to help Iran evade U.S. sanctions.

Reza Zarrab is cooperating with U.S. prosecutors in the criminal trial of a Turkish bank executive accused of helping to launder money for Iran. At the time of the alleged conspiracy, Erdogan was Turkey's prime minister.

Zarrab said he had learned from Zafer Caglayan, who was Turkey's economy minister, that Erdogan and then-treasury minister Ali Babacan had authorized two Turkish banks, Ziraat Bank and VakifBank, to move funds for Iran.

Both Ziraat and VakifBank denied taking part in the scheme.

Erdogan's spokesman, and an adviser to Babacan could not immediately be contacted by Reuters. Erdogan said earlier on Thursday that Turkey did not violate U.S. sanctions, CNN Turk reported. A spokesman for Erdogan's government has called the case a "plot against Turkey."

The testimony came on the third day of the trial of Mehmet Hakan Atilla, an executive at Turkey's state-owned Halkbank, who has pleaded not guilty in Manhattan federal court.

U.S. prosecutors have charged nine people in the case with conspiring to help Iran evade sanctions, although only Zarrab, 34, and Atilla, 47, have been arrested by U.S. authorities.

Over two days of testimony, Zarrab has told jurors that he helped Iran use funds deposited at Halkbank to buy gold, which was smuggled to Dubai and sold for cash. On Thursday, he said that he had to stop the gold trades and start moving money through fake food purchases instead in 2013, after U.S. sanctions changed.

Zarrab has said that Atilla helped design the gold transactions, along with Halkbank's former general manager, Suleyman Aslan.

On Thursday, Zarrab discussed a 2013 phone call with Atilla about his plan to switch from gold trades to fake food sales. He said Atilla did not understand at the time that no actual food would be sent to Iran, and was reluctant to sign off on the plan.

Zarrab said Aslan ordered Atilla to allow the transaction.

Zarrab has testified that in the course of his scheme, he bribed Aslan and former Turkish economy minister Zafer Caglayan.

Both Caglayan and Aslan were charged in the case. Reuters was not able to reach Caglayan or Aslan for comment.

Turkey's government has previously said that Caglayan acted lawfully, and Halkbank has said it acted lawfully as well. Caglayan previously said that similar allegations in a 2013 corruption investigation in Turkey that was later dismissed were "unfounded claims".

(Reporting By Brendan Pierson in New York; editing by Dan Grebler and Steve Orlofsky, Editing by William Maclean and Richard Balmforth)